The Bush administration and senior regulators said Thursday that there was no need for new regulations that would make the rapidly growing hedge fund industry more transparent or subject to greater oversight, or to protect the financial system from the collapse of a large fund company.
Market discipline and risk awareness, the regulators said, will best protect investors and the economy from any problems in the hedge fund industry.
To that end, the administration and the regulators proposed that investors, hedge fund companies and their lenders adopt nonbinding guidelines that they said could make the hedge fund companies more transparent and their investors and creditors more vigilant to shady operators and excessive risk-takers.
Thursday's decision, which followed months of study by a presidential working group, reflected both the strong anti-regulatory philosophy of the administration and the formidable new clout and influence of the wealthy hedge fund industry. Three of the major economic policymakers in Washington — Treasury Secretary Henry M. Paulson, Treasury Undersecretary Robert K. Steel and White House chief of staff Joshua Bolton — are all alumni of Goldman Sachs, which in the last decade has evolved into perhaps the most significant player in the private equities market.
The explosive growth of hedge funds into an industry with more than $1 trillion in assets has made them an icon in popular culture, a huge source of philanthropy to the nation's museums and orchestras, and a major new force in political campaigns. Millions of Americans do not qualify to make investments in the funds, which are pools of largely unregulated assets, but they are unknowingly exposed to the risks associated with hedge funds through their pension and retirement accounts.